• DAC-CSO Reference Group

DAC HLM 2020: Advancing the Role of the Private Sector in Development Cooperation

Note: This commentary was written by Jiten Yumnam, from the Centre for Research and Advocacy Manipur (CRAM) in northeast India, one of our member organizations. In this piece, Yumnam reflects on the proceedings of the High-Level Meeting (HLM) of the Organization for Economic Cooperation and Development's Development Assistance Committee (OECD DAC), held last November 9-10. He discussed the pitfalls of the DAC's overemphasis on private finance, blended finance, and private sector instruments as (misguided) solutions for COVID-19 response and recovery and mitigation of climate change impacts. The original post can be accessed through the link found at the end of this article. Yumnam is a journalist, human rights advocate, and environmental activist in the state of Manipur in India. He also belongs to the Indigenous Peoples of Manipur. As part of CRAM and other human rights groups, he has long been active in the campaign against human rights violations and the exploitation of natural resources in Manipur.


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DAC HLM 2020: The High-Level Meeting (HLM) of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development held virtually from 9–10 November 2020, despite high hopes, was marred with overt focus on private sector role, failing on commitments for urgent issues addressed, such as the Covid 19 Pandemic, climate crisis, economic crisis, etc.


Covid 19 response: Reflecting on the Covid 19 pandemic, DAC members agreed that the pandemic reversed development gains in partner developing countries and further exacerbated hunger, poverty, and inequality. DAC members deliberated Covid 19 response exerted tremendous pressure on scarce resources and emphasized the need for effectiveness of ODA in development cooperation and pandemic responses.


During the HLM, DAC members stated that given the COVID-19 and challenge of sustainable development financing, the DAC needs to ensure that ODA works harder to leverage more resources with better use of the resources of the multilateral development banks, funds, national development banks, etc. In the HLM communique, DAC members committed to mobilize more official and private resources, including the controversial ‘blended finance’, towards “building back better and greener” to overcome the Covid-19 Pandemic and economic crisis and to realize Sustainable Development Goals (SDGs).


Development Finance Institutions (DFIs) focused on the need to provide grant-based finance, including technical assistance, to help companies mitigate the effects of the Covid-19 pandemic on their business operations. However, evidence shows that DFIs serve donor and corporate interests. The International Development Association of the World Bank used its Private Sector Window to mitigate impacts of Pandemic by providing concessional financing to bail out companies in financial distress[1]. As of June 2020, around 50 percent of International Finance Corporations supported companies that were either majority-owned by multinational companies or were international conglomerates. The UK’s CDC provided guarantees to medical suppliers, such as BASF, to increase access to medical supplies in developing countries[2].


Climate Change: The deliberations on Climate Change during the HLM indicates positive suggestions to avoid financing that harms the environment. Several DAC members insisted on a fossil fuel free economy, suggested to desist using ODA to subsidize fossil fuels, notorious for emitting greenhouse gases. The suggestions are key to avoid impacts of fossil extractions on people and environment.


However, suggestions from DAC members to tackle climate crisis, through innovative financing, such as Blended Finance raised concerns among civil society organizations. Members suggested using ODA to mobilize private sector financing in climate crisis and further to use ODA to share risk with Development Financial Institutions (DFIs). ODA has been promoted as mere guarantees for private finance to advance commercial objectives of profit-seeking corporations undermining ODA objectives.


Questions persists if the solutions propounded for financing climate response through Blended Finance focusing on private sector will solve and reverse climate crisis. The financing of large dams, geothermal, coal fired power plants etc through Blended Financing using ODA to mitigate climate change such as Trishuli I Dam in Nepal, Olkaria Geothermal Stage V etc in Kenya[3] etc. caused displacement of indigenous communities, besides inflicting massive environmental impacts. Large dams, denounced in many EU countries, and confirmed as one of major emitter of GHGs continues to be financed with ODA, often referring to one of solutions to combat climate change. The 140 MW Tanahu hydropower project in Nepal and several large dams and related infrastructures across North East India are financed by Japan International Cooperation Agency (JICA), Asian Development Bank (ADB), and European Investment Bank (EIB).[4]The investment on renewables need be socially and environmentally appropriate. The enormous infusion of ODA, mostly as loan will also lead to indebtness of countries.[5]


Private Sector Focus: The HLM communique indeed committed to working with partner countries, the private sector and multilateral organizations to improve business environments, share risks and rewards fairly when collaborating with businesses investing in developing countries. The effective use of ODA seems to be interpreted as effective mobilization of private finance for SDGs using ODA. The concessional ODA has now been reduced as amplifier of private finance. There are concerns if private finance is mobilized enough for Least Developed Countries (LDCs). The causes and factors as to why private finance moves to Middle Income Countries with high prospect for business and profit like Kenya, South Africa in Africa and India, Indonesia in Asia and not to LDCs has been ignored.


The liberalization of policies for an enabling environment to attract private finance, will only reinforce the existing development model that fostered inequality, hunger and poverty. Tied aid and policy conditionalities continue to be a major challenge, as major DAC members continue to insist on tied aid to the detriment of the rights and economy of partner countries. The pursuance of infrastructure and energy projects with financing by DFIs and private financing has led to implications on the people, environment, and unaccountability of the corporate bodies and indebtness of partner countries, besides facilitating extraction of natural resources in indigenous land[6]. Private sector accountability is critical.


Development Effectiveness: A key highlight of the HLM is the renewed commitment to the Busan principles for effective development co-operation – country ownership, transparency and accountability.


References:

[1] (2018, November 17). IDA and the Private Sector Join Forces to Fight to Pandemic in the Most Fragile Countries. World Bank Press Release IDA and the Private Sector Join Forces to Fight the Pandemic in the Most Fragile Countries (worldbank.org)

[2] Jan Van, P. (2020, November). Development Finance Institutions and Covid-19: Time to reset. Eurodad Briefing Paper.

dfi-and-covid-nov05.pdf (d3n8a8pro7vhmx.cloudfront.net)

[3] Shiloh Fetzek. (2015 November 2). Geothermal expansion and Maasai land conflicts in Kenya.

[3] https://www.newclimateforpeace.org/blog/geothermal-expansion-and-maasai-land-conflicts-kenya

[4] (2013, May 8.) EIB lends €55m for Nepal hydropower plant.’ Water Briefing.

https://waterbriefing.org/home/energy-and-carbon/item/7399-eib-lends-%E2%82%AC55m-for-nepal-hydropower-plant

[5] Prithivi Man Shrestha. (2020, April 14.) ‘Nepal among nations to receive debt relief from International Monetary Fund.’ The Kathmandu Post.

[6] Yumnam, J. (2019, July 22). IFIs & Blended Financing in a Changing Context in Asia. CRA, Manipur Link to the original post: https://cramanipur.wordpress.com/2020/12/01/dac-hlm-2020-advancing-private-sector-role-in-development-cooperation/